Ermenegildo Zegna N.V. H1 FY26 earnings call ZGN

The Zegna brand continues to demonstrate solid top-line growth and margin expansion, driven by consistent strategic vision and disciplined execution. The brand is successfully increasing market share among loyal customers and attracting new clients, maintaining its premium positioning. This positive momentum extended through July and August, supported by targeted campaigns like the Fall/Winter '26 Su Misura Make-to-Measure launch, which emphasizes craftsmanship and legacy. The brand is also seeing growth in key categories such as shoes, knitwear, 5-pocket pants, eyewear, and fragrances, indicating a broadening customer base beyond the top of the pyramid.

Thom Browne is undergoing a significant transformation, shifting from a wholesale-driven model to a retail-oriented approach. This transition involves reducing and upgrading the wholesale network, a process that has been slower than initially expected due to macroeconomic challenges^🌐. The brand is also reshaping its senior leadership team under new CEO Sam Lobban, focusing on DTC and customer-centricity. While the brand's desirability remains strong, as evidenced by collaborations like ASIC, the transformation has temporarily weighed on H1 2026 results, leading to a negative adjusted EBIT. Management expects H2 EBIT to turn positive, bringing the full year close to breakeven, driven by lower currency headwinds^🌐, optimized open-to-buy management, and tight cost control.

The Tom Ford Fashion segment showed improved adjusted EBIT results in H1 2026, narrowing its loss compared to the prior year. This improvement is attributed to revenue growth and ongoing cost discipline. Management is selectively deploying additional marketing resources to strengthen brand awareness and engagement. Short-term growth opportunities include expanding apparel offerings, particularly in women's daywear and made-to-measure tailoring, leveraging Filiera capabilities. Mid-term, a significant untapped opportunity lies in developing a solid platform for women's bags. The brand has several new store openings planned, including a flagship in Paris, which will introduce a new store concept.

The group's gross profit continues to be supported by a favorable channel mix, with DTC revenues accounting for 86% of branded group revenues in H1 2026, up from 82% in H1 last year. This shift is beneficial as DTC channels yield higher gross margins than wholesale. Conversely, the wholesale channel is expected to continue contracting across brands. Zegna's wholesale is projected to decline in the low double digits due to selective distribution, while Thom Browne's wholesale will also decline, albeit with a smaller absolute impact than last year. Tom Ford's wholesale is expected to be stable.

Capital expenditures increased by EUR 10 million to EUR 64 million in H1 2026, primarily driven by investments in production, including a new shoe production plant in Parma expected to operate by year-end. Despite increased capex, the group generated EUR 19 million in free cash flow in H1 2026, a significant improvement from the EUR 23 million absorption in H1 last year. This was due to stronger cash generation from operating activities and improved trade working capital, which decreased to EUR 420 million at the end of June 2026 from EUR 442 million last year, mainly from lower receivables due to wholesale streamlining.

Management observes volatility in the China market but notes a bifurcation in brand performance. The Zegna brand continues to perform well and gain market share in China, attributed to a consistent brand strategy and focus on untapped opportunities like triple stretch and make-to-measure. However, the Thom Browne brand is experiencing a softer trajectory in China, with its performance over the summer being significantly impacted by the market's softness. The company is cautiously monitoring the evolution of consumer mood regarding new taxes and offshore investments in China.